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10/5/11

Here's how IKN126 started last weekend. We'd already raised cash by selling a few positions and although we're still long the junior mining market, there's a nice cash pile on the sidelines these days. The question nowadays is when to use it. The following text is edited very slightly to remove specific company names.

Be clear: It can get worse in juniors

It was always going to be a rough week last week and sure enough, the market didn’t “disappoint” our expectations. Your author executed his cash raising plans early Monday, then as noted in the Flash update of Thursday decided not to go for the other mooted sale, that of (removed), as its share price action has been fairly good and its news that very morning was very good (more on that NR below).

So that’s how I’ve decided to position myself to the current airs and trends of the market; put simply, some hatches battened down, risk-off silver in particular, but without doubt I’m still long the junior mining sector (just less long than I was). I’m now at XX% cash in the trading account, which could be a little more come this time next week because sales in the small positions are in the cards However, I’m eyes-wide-open to the fact that the stocks I’m holding, especially those tiny illiquid things like (removed) or whatever other you’d like to mention may well see further downside before things get better. Or they may not just stay where they are for a while. Or they may rebound tomorrow morning and get 50% bounces by this time next week.

Be clear: I DO NOT KNOW.

I’m not your guru, folks, never have been and never will be. I’m the value investor, the risk-adjuster and the whussy weakhand/stubborn obstinate holder. However, what I DO know is that I’m comfortable with my personal current portfolio positioning and exposure, it’s where I want to be right now and the relief of raising cash is offset nicely by the positions and risk exposure still held. I’m fully aware that there may be further short-term pain in the works, but I’m also fully aware that the tidy little cash pile now raised might be better used in buying back a few positions tomorrow morning. In other words, I’m good about the balance here and don’t feel the need to buy back immediately...that can wait a couple of weeks at least.

With the emphasis firmly on “at least”.

With last week’s sales done there’s an automatic and natural tendency to sniff the air, see recently sold stocks at significantly cheaper prices and think “hmmm...could buy that back right here”. However I’m going to resist rushing back in to any position until mid-October at the very earliest, because it doesn’t matter how good a stock looks (or not) on a stand-alone basis when the macro scene is the most important price driver. GPR, FVI, MFN, GOZ, RIO or whatever other company could have a blow-out excellent quarter under its belt and could guide strongly for the quarter or quarters to come, but if gold drops $50 and/or silver decides to swoon another $5/oz it won’t matter a jot. They’ll all go down.

Therefore your author will stay consistent and be the whuss that he normally is regarding the market. In my considered opinion it’s too early to think about buying back into the market and I much prefer the safety of the sidelines for the cash recently accumulated. Repeat: The earliest for a re-buy would be mid-October and that’s only if things go very well from now until then, so it’s far more likely that the cash stays on the sidelines through October and into November. No definitive calls being made here, it’s going to be one step at a time and a constant consideration of risk vs reward in the short-term. In a perfect world, even lower prices will turn up for purchase before a decent rebound sets in. In an imperfect but acceptable world the bottom is already in, the positions still held make gains and the cash is used to buy back at higher prices in a few weeks’ time. But either way, I’m holding on tight to the cash for the moment as the risk factor is still way too high for my cowardly blood.

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